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EIDX/CompTIA ConsignmentScenario II
Consignment with Consumption-Based Supplier Managed Inventory
Supplier-managed Inventory process. Buyer is in possession
of inventory owned by the seller. Buyer reports consumption (in-house),
transfer or resale. Report of consumption/transfer/resale triggers
transfer of ownership and billing/payment cycle; seller calculates
replenishment requirements based upon consumption information. Optionally,
seller may compare buyer’s planning forecast to consumption data
when evaluating requirements.
Buyer is typically a retailer selling to consumers or an end customer,
such as a prime contractor (a/k/a OEM) or contract manufacturer,
but may be a distributor or value-added reseller. Seller may be
a component supplier, contract manufacturer, distributor, etc.
Click here to view a larger image.
| Step |
Description |
| 1. |
Pre-Order Model 2:
The buyer and seller negotiate the terms for the consignment
process and the related Blanket Purchase Orders. The pre-order
process includes the establishment of pricing and a Terms and
Conditions Agreement. |
| 2. |
Buyer issues Blanket
Purchase Order (BPO) to seller per Order Model 2 component of
Replenishment Scenario 6. |
| 3. |
The buyer reports the transfer-of-ownership event.
There is more than one choice here because reporting an event
that triggers transfer-of-ownership in a consignment process
very often means using business message that is already being
exchanged, and may or may not require the addition of a data
element or two.
In this Consignment Scenario, reporting of consumption or sales
may trigger replenishment and is therefore shown as occurring
before any shipment process. This is because the consumption
or sales data event is needed in order to determine whether
or not replenishment is required. It is assumed that there
is an initial stocking of the consignment warehouse before the
cycle of events described in this Consignment Scenario begin.
The following options are described in more detail in the supporting
documentation:
- Inventory Management Model 1
- Sales Reporting Scenario
- Inventory Management Model 2
- Inventory Management Model 3
- Inventory Management Model 4
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| 4. |
If supplier determines
that replenishment is required during the current planning cycle,
the seller generates a release against the buyer's BPO per the
Order Model 3B component of Replenishment Scenario 6. |
| 5. |
Seller transfers (ships)
goods to consignment warehouse per appropriate Shipment Model.
The Shipment Scenario here is embedded within Order Model
3B because the Shipment Notification document is serving a
dual purpose in Supplier-Managed Inventory, acting both as
Ship Notice/Manifest and as a "reverse release,"
informing the buyer that a release has been made against its
BPO.
If a third-party warehouse is used, see Consignment Scenario
4 - Third-party Warehouse, Buyer-Contracted or Consignment
Scenario 5 - Third-party Warehouse, Seller-Contracted.
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| 6. |
Inventory Management
Model 1: (Optional) Inventory is physically located at
buyer’s facility. Buyer performs inventory counts and
reports to seller (scheduled, as-needed, or at seller request).
Seller may invoice for inventory shrinkage.
The buyer may also use the inventory report to report billable
consumption of inventory. In that case, Step 3 above
may not be required, but at least one of step 3 or step 6
is required.
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| 7. |
(Optional) The buyer
reports may report inventory adjustments, if applicable.
See Inventory Management Model 10 or adjustments may be included
in Inventory Reporting per Inventory Management Model 1 (step
6). |
| 8. |
Financial Scenario:
Ownership transfers from seller to buyer per contractual terms.
Seller invoices buyer or payment is triggered per appropriate
Financial Model. Seller may also bill for inventory shrinkage
per contractual terms. |
Activity Diagram
Click here to view a larger image.
| Step |
Description |
| A. |
At start state A, the
buyer and seller are ready to negotiate terms for consigned
inventory. |
| 1. |
Order Model 2:
Buyer issues a Blanket Request for Quote and the seller sends
a quote. This step also includes the establishment of
a Terms and Conditions Agreement. See Pre-Order Model
2 for details. |
| B. |
At End State B, the
buyer and seller have not agreed on terms. The process
may simply end, or another iteration of the pre-order process
may begin. |
| 2a. |
If the seller's quote
is acceptable and agreed upon Terms and Conditions exist, the
buyer issues Blanket Purchase Orders for parts that are part
of the consignment program. The seller sends back responses
to the Blanket Purchase Orders. |
| C. |
At start state C, the
buyer is ready to execute an iteration of the material planning
process. |
| 2b. |
The buyer reports the transfer-of-ownership event (consumption
or resale). There is more than one choice here because
reporting an event that triggers transfer-of-ownership in
a consignment process very often means using business message
that is already being exchanged, and may or may not require
the addition of a data element or two.
In this consignment scenario, reporting of consumption or
sales may trigger replenishment and is therefore shown as
occurring before any shipment process. This is because
the consumption or sales data event is needed in order to
determine whether or not replenishment is required.
It is assumed that there is an initial stocking of the consignment
warehouse before the cycle of events described in this consignment
scenario begin.
The following options are described in more detail in the
supporting documentation:
- Inventory Management Model 1
- Sales Reporting Scenario
- Inventory Management Model 2
- Inventory Management Model 3
- Inventory Management Model 4
|
| D. |
At end state D, no replenishment
is required for this planning cycle. |
| 2c. |
When inventory needs
replenishment, releases are issued against the Blanket Order.
Releases are supplier-managed, per Replenishment Scenario 4
and when replenishment is needed, the seller transfers (ships)
goods to consignment warehouse (buyer’s or third party’s
facility).
After replenishment, the consigned inventory is physically
in the possession of the buyer or the buyer's agent, but is
owned by the seller and remains on the seller's books.
Buyer and seller now wait until the activity that triggers
transfer of ownership occurs.
|
| E. |
At Start State E, (Optional)
The buyer and seller have agreed that the buyer will report
the status of the consigned inventory to the seller (scheduled,
as-needed, or at seller request). |
| 3. |
Inventory Model 1 -
The buyer performs inventory counts and reports to seller. The
seller may invoice for inventory shrinkage. The buyer
may also use the Inventory Report to report billable consumption
of inventory. In that case, Inventory Model 4 is not required. |
| F. |
At Start State E, the
buyer or buyer's agent has done an inventory count and needs
to report one or more adjustments. |
| 4. |
Buyer reports inventory
adjustments to seller. Resolving discrepancies is usually
handled manually. |
| G. |
At End State G, there
are no billable shrinkages reported, so seller is not triggered
to invoice the buyer for lost inventory. |
| 5. |
Ownership transfers
from seller to buyer per contractual terms. The seller
invoices buyer or payment is triggered per appropriate Financial
Model. For this consignment scenario, a pay-on-consumption
financial model is recommended. |
| H. |
At End State H, the ownership
of the inventory has been transferred, and payment has been
made. |
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